Tech and Luxury Weigh on Markets as Equities Slump: Global Market Update

written on October 16, 2024

U.S. and European Markets Decline

On Tuesday, U.S. and European equities faced declines, led by semiconductor stocks after ASML prematurely posted disappointing earnings. The S&P 500 fell by 0.76%, the Dow lost 0.75%, and the tech-heavy Nasdaq dropped by 1.01%. Strong earnings reports from financial institutions like Goldman Sachs and Bank of America weren’t enough to counterbalance the tech sector’s downturn. Despite easing Treasury yields as inflation concerns abated, market volatility surged, with the VIX rising to 20.72.

Asian Markets Drop Amid Tech Weakness

Asian equities saw sharp declines on Wednesday, led by a sell-off in technology and semiconductor shares following ASML’s weak sales outlook. Japan’s Nikkei 225 dropped by 1.9%, and South Korea’s KOSPI fell by 0.7%. In China, fading optimism around economic stimulus weighed on markets, with the Shanghai Shenzhen CSI 300 down 0.8%. Australia’s ASX 200 also dipped 0.3%.

European and U.S. Markets Expected to Open Lower

Looking ahead, European and U.S. markets are expected to open lower, reflecting negative sentiment from disappointing earnings reports. The European tech and luxury sectors are particularly vulnerable following ASML’s downgraded sales forecast and LVMH’s revenue decline. Similarly, U.S. futures signal a bearish trend driven by concerns over consumer demand and earnings performance across key sectors.

Oil Prices Stabilise After Middle East Tensions Ease

Oil prices rose slightly in Asian trade, stabilising after sharp declines due to the easing of tensions in the Middle East. Reports that Israel will not target Iran’s oil facilities reduced fears of supply disruptions. However, weak economic data from China, including reduced oil imports, along with downgraded demand forecasts from both the International Energy Agency (IEA) and OPEC, continued to pressure oil prices.

Italy Moves to Secure Funds for 2025 Budget

Italy’s government is close to securing up to €4 billion from banks to help finance its 2025 budget, which aims to cover €25 billion in measures, including tax cuts. The plans include altering bank tax credits and raising excise duties. Italy aims to reduce its budget deficit to 2.8% of GDP by 2026, but the country’s debt is expected to rise gradually to 137.8% of GDP.

Earnings Highlights: ASML, LVMH, Goldman Sachs, Citigroup

ASML: ASML shares plunged 16% after the company prematurely posted its earnings a day early and lowered its 2025 sales forecast, citing prolonged weakness in parts of the semiconductor market despite strong demand for AI chips. ASML reported Q3 sales of €7.5 billion with €2.1 billion in profit, though bookings fell short at €2.6 billion. Notably, sales to China reached a record high of €2.79 billion.

LVMH: LVMH reported a 3% decline in Q3 2024 revenue, totaling €19.1 billion, primarily due to weaker performance in Japan caused by a stronger yen. While Europe and the U.S. posted slight growth, the Wines & Spirits division saw an 8% revenue drop, and Fashion & Leather Goods fell 1%. However, Perfumes & Cosmetics and Selective Retailing segments grew 5% and 6%, respectively. Despite the challenges, LVMH remains confident in navigating ongoing economic uncertainties.

Goldman Sachs: Goldman Sachs exceeded expectations in Q3, reporting adjusted earnings per share of $8.40, surpassing estimates of $6.93, and revenue of $12.7 billion, ahead of expectations of $11.81 billion. Key drivers included $8.55 billion from its Global Banking & Markets segment and $3.75 billion from Asset & Wealth Management. Investment banking fees rose 20%, and assets under supervision hit a record $3.10 trillion. The return on equity (ROE) for the quarter was 10.4%.

Citigroup: Citigroup’s Q3 profit beat expectations, supported by a 31% rise in investment banking revenue to $934 million. Despite this, net income dropped to $3.2 billion, largely due to a $1.9 billion increase in credit loss allowances. CEO Jane Fraser emphasised progress in simplifying the bank’s structure and addressing regulatory issues.

Airlines and Health Sectors Post Strong Results

United Airlines: United Airlines posted stronger-than-expected third-quarter earnings, with adjusted profits of $3.33 per share, surpassing estimates of $3.17. The airline announced a $1.5 billion share buyback program, its first since the pandemic. United’s Q4 forecast predicts profit between $2.50 and $3 per share, exceeding analysts’ expectations, bolstered by improved pricing power, capacity adjustments, and lower jet fuel prices.

UnitedHealth: UnitedHealth’s Q3 earnings exceeded forecasts, with earnings per share (EPS) of $7.15 and revenue reaching $100.82 billion. The UnitedHealthcare segment saw revenue growth of 7.2%, reaching $74.9 billion, while Optum’s revenue rose 13% to $63.9 billion. Despite these strong results, the company trimmed its full-year profit outlook, citing increased business disruption costs and a higher-than-expected medical loss ratio.

Conclusion

Global equities continue to face heightened volatility, driven by disappointing earnings reports from key sectors, particularly technology and luxury. Investors are likely to remain cautious as earnings season progresses, with a close eye on developments in the semiconductor market and the tech sector overall. Market volatility is expected to persist as macroeconomic and geopolitical uncertainties continue to weigh on sentiment.

For more information, visit https://cc.com.mt. The information, views, and opinions provided in this article are for educational and informational purposes only and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice.

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